Audio available at the end of this post.
Qullamaggie often tells us to learn how stocks move — a lesson he learnt from his mentor, Stockbee.
Why must we learn this through our own studies?
A couple of reasons:
1. You can’t borrow conviction — you must develop your own
Trading is an imperfect business. It inevitably involves suboptimal decision-making.
So, when you repeatedly get out early (or whatever), how long do you think you’ll stick with someone else’s advice — even if what they say is correct?
As such, look at teachings from people like Qullamaggie and other top traders as ‘signposts’ only. As Kristjan often says: he can only point people in the right direction.
But you need to do your own work, for thousands of hours.
The top is narrow for a reason.
2. If you don’t do your own work, you’ll never be creative or innovative
Creativity and innovation are the key focus of today’s stack.
To be clear: the same patterns have been forming for hundreds of years, because they reflect supply and demand. That much will never change, and that’s why Kristjan keeps telling us to learn how stocks move.
If you lack a firm knowledge base, whatever you add on top will, sooner or later, crumble.
That’s why Stockbee teaches traders (including Kristjan) to do a deep dive. Even a ‘mini deep dive’ — Pradeep’s daily study — works wonders.
The first step is to find a setup. A deep dive enables you to do just that.
If you truly understand how stocks move, you can figure out how to use that knowledge to your advantage. But that also requires innovation and creativity.
What good traders have in common
In the video above, Pradeep mentions various ‘case studies’ of famous traders, including Livermore, Darvas and Minervini, who all made unique discoveries following a deep study.
As Pradeep said (I copy-edited):
“Good traders are innovators. They find better ways to do things. They are creative. They look at the same setup or market situation in a different way, and design strategies to extract a profit.
“Creativity is required to reduce drawdowns or to judiciously use margin to enhance returns. Creativity is also involved in designing entry or exit strategies.
“If you study successful traders, you’ll see they’ve innovated in these areas. They don’t follow the most common techniques or indicators.
“There’s too much talk in trading communities about discipline and psychology, and not enough focus on creativity in trading.
“If you aren’t creative and innovative as a trader, it’s unlikely you’ll last much longer, even if you focus a lot on discipline or psychology.
“Good traders […] always have new and fresh ideas. They hunt for new ideas and try to incorporate them in their trading.
“If you want to improve your trading, start generating and collecting new ideas. Fresh ideas will give you fresh perspective and fresh ways to make money.”
Creativity and innovation are also linked to good problem-solving skills.
Meanwhile, overfocusing on discipline makes you overly rigid, and less likely to have eureka moments. The ‘eureka effect’, as psychologists call it, tells us that solutions to non-obvious problems come to us when we least expect them.
(And yes, discipline is good to have as a trader — after you figure out what to be disciplined about.)
How to test ideas statistically
This brings me back to an older stack, where I quoted Tom Dante:
“Good traders that have knowledge that you don’t have — it didn’t f**king just come to them. […]
“The fact that I know:
The statistics of an open drive in the Bund; or […]
The probabilities of the Bund going up between 4 and 9 pm on month ends; or […]
The statistics for the EUR/USD gap closing on a Sunday.
“I wasn’t born with this bloody knowledge! I’ve gone through hours and hours and hours and hours of working it out.
“So, I get ideas, and I put them in [my notebook], and I test them at a later stage.”
Tom’s high-level process is:
Write down an idea of a statistic to gather — e.g. do all gaps in a specific currency pair fill?
Formulate an idea to test — e.g. what would happen over time if you enter when the market opens (going against the gap), and set your target at the gap close and your stop at the same size as the gap?
Start testing — i.e. collect the data and enter it into Excel.
Gather new ideas and retest them to find an edge (particularly with respect to managing risk) when accounting for different variables.
I explained Tom’s process in more detail here.
Traits to help boost creativity
Coming back to Pradeep, he’s tweeted a lot about how he values creativity and innovation more than mindless discipline.
Kristjan similarly said during a stream: “Your biggest problem is creativity.”
But it’s best combined with a few more traits:
Audacity — as Pradeep says: “Creativity is a high-risk, high-reward strategy”.
Attention to detail — it’s difficult to come up with something new if you can’t spot things other people miss.
Process orientation — how do you implement setup ideas? To quote Pradeep:
“Different traders use different processes to trade these setups and get different results. A small process tweak can improve win rates or per-trade profits. […]
“Profit is an outcome of a well-designed process around a generic setup idea.”
Determination and self-leadership — ‘This isn’t working. How can I change that? What can I do to make it work?’ As Marios Stamatoudis said:
“Different implementations can significantly change your results, even if you have the same profound idea about a probable event, emerging theme, etc.
“Choosing the right vehicle at the right time is truly important in trading, which goes way beyond setups.
“You’re connecting the dots through time to supercharge your ideas with a bit of luck in efficient ways.”
You can’t always execute your ideas, and you’ll usually not be in the most efficient ‘vehicle’, but even just thinking about such points puts you ahead of those who don’t.
For instance, if you understand that big moves happen in multiple ‘legs’, which start by a stock breaking out of a tight range, how will you use that to your advantage?
Will you buy the breakout, or maybe you prefer pullbacks?
What characteristics increase the odds of a successful breakout?
If you do buy breakouts, what type of entry tactic will you use, and where do you place your stop?
And how do these big moves start? With an episodic pivot (EP)! Which is typically followed by post-earnings-announcement drift (PEAD), when the stock consolidates, and breaks either out or down from that range.
Again, if you understand how stocks move, you can then figure out how you’ll use that information to your advantage. It’s also useful to learn how setups interplay.
What creativity is and isn’t
Creativity starts with taking the known — don’t reinvent the wheel, particularly not to begin with — and adapting it to fit your own needs.
To quote Marios again:
“Great performance lies in small tweaks to commonly available knowledge, rather than trying to find ‘new rare’ knowledge in setups and strategies.”
Though you can come up with ideas of staggering originality, most of the time, creativity means tweaking existing ideas.
Take what’s already out there as your starting point, then mould it to fit your own personality.
You can also think of it as a muscle you need to regularly exercise and stretch so it can grow. Ideally, you make it a daily habit, regardless of your field.
In any profession, you’ll struggle to reach the top without innovation.
I’d also like to remind you that if someone tells you that you can’t do something, they usually mean that they can’t do it.
Don’t let those who can’t think big hold you back.
Writing examples
Since I’m a better writer than trader, I thought I’d finish with some examples of how I’ve tried to be creative as a writer. Hopefully, they’ll spark some ideas for you!
1. Qullamaggie stream notes
Though my earliest stream notes look nothing like my later notes, I never took the ‘default’ approach of providing just screenshots, bulleted summaries and quotes from Kristjan.
I was making active efforts to connect points from different streams. I added my own insights. And I’d like to think that I turned stream notes into some kind of art form — something that, linguistically speaking, was a pleasure to read.
I took something introduced by others — Qullamaggie stream notes — adapted it to suit my style, then refined that style with practice and time.
2. Accessing technical know-how in cyber security
In my day job, I work in data privacy and cyber security as a technical content writer.
But I lack practical, hands-on experience in the industry. I don’t look at clients’ infrastructures — I just read standards and laws like ISO 27001 and the GDPR, then explain the requirements in plain English.
Or at least — that’s what I’d been taught. My (older) peers are ‘book smart’, so I was expected to follow suit.
Only I wasn’t satisfied with that. I wanted to get real-world insight — which meant talking to our experts (mostly consultants and trainers).
After I changed jobs (within the same company) last year, my new boss allowed me to try this — although I suspect he wasn’t holding out too much hope. And yes, it took a lot of work, learning entirely new skills, including:
Interviewing people;
How to put people at ease;
Guessing/sensing what type of person my ‘target’ is, so I would use the appropriate tactic; and
Producing written Q&As.
But I was getting results relatively quickly! (I suspect that compounding — through word of mouth — played in my favour. But I had plenty of failures along the way, too.)
I now have strong relationships with experts across the business, and have conducted dozens and dozens of interviews, which I’ve subsequently written up. (Here’s an index.)
In an industry like cyber security, the disconnect between the writers (who aren’t experts) and the practitioners (who don’t have the time or inclination to write) is rarely bridged. I’m proud to be part of that change.
If readers get to benefit from knowledge they’d otherwise not have access to, experts get a chance to share and document their knowledge, and the writer (me) gets to do interesting and useful work, I call that a win-win-win.
Had I stuck to the status quo, none of that would’ve happened.
But it took creativity, audacity, determination, self-leadership, and many of the other qualities and behaviours discussed in this stack to make it happen.
Again:
If someone tells you that YOU can’t do something,
they usually mean that THEY can’t do it.
Don’t let them hold you back.
If someone tells you ‘no’, find another way to make it happen.
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Great post as always! Look forward to the next one!
Very insightful kyna👏🏻👏🏻